Cooper-Standard Holdings Inc. (CPS) Q2 2025 Earnings Call Transcript
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Overview
The company reported improved financial metrics, including a shift from a net loss to a positive adjusted net income, increased gross profit and EBITDA margins, and strong liquidity. The Q&A session confirmed significant new business and margin expansion potential, with conservative forecasts suggesting further upside. These factors, combined with a successful refinancing outlook, indicate a positive sentiment for the stock price over the next two weeks.
Key Financial Performance
Sales Second quarter 2025 sales were $706 million, a decrease of 0.3% compared to the second quarter of 2024. The slight decrease was driven primarily by unfavorable volume and mix, including net customer price adjustments, partially offset by favorable foreign exchange.
Adjusted EBITDA Adjusted EBITDA in the quarter was $62.8 million, an increase of more than 23% when compared to the $50.9 million reported in the second quarter of last year. This improvement was driven by lean initiatives in purchasing and manufacturing, restructuring savings, and favorable foreign exchange, partially offset by unfavorable volume and mix and increased costs from higher wages and general inflation.
Net Loss On a U.S. GAAP basis, the company reported a small net loss of $1.4 million in the second quarter compared to a net loss of $76.2 million in the second quarter of 2024. Adjusted net income for the second quarter of 2025 was positive $1 million or $0.06 per diluted share compared to an adjusted net loss of $11.3 million or $0.64 per diluted share in the second quarter of 2024.
Capital Expenditures Capital expenditures in the second quarter of 2025 totaled $7.8 million or 1.1% of sales, which was lower than the second quarter of last year, owing largely to the timing of new launched projects.
Gross Profit Margin For the first 6 months of 2025, gross profit margin increased by 200 basis points compared to the same 6-month period a year ago. This was achieved despite lower revenue, driven by cost control and more profitable program launches.
Adjusted EBITDA Margin For the first 6 months of 2025, adjusted EBITDA margin improved by 300 basis points compared to the same 6-month period a year ago, driven by manufacturing and purchasing efficiencies, restructuring savings, and favorable foreign exchange.
Net Cash Used in Operating Activities Net cash used in operating activities was approximately $16 million in the second quarter of 2025 compared to $12 million in the second quarter of 2024. This was consistent with the prior year despite higher cash interest paid.
Liquidity The company ended the second quarter with a cash balance of approximately $122 million. Combined with $151 million of availability on the ABL facility, total liquidity was approximately $273 million as of June 30, 2025.
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Operating Highlights
New Business Awards: Awarded $77 million in net new business awards in Q2 2025, including collaborations with Renault Group on eco-conscious vehicle innovations like FlexiCore thermoplastic body seal and FlushSeal sealing system.
Innovative Products: Introduced low-carbon, high-performance vehicle innovations for Renault's Emblème project, focusing on reducing CO2 emissions.
Geographic Expansion: Expanding geographically in association with key and fastest-growing customers, particularly in hybrid vehicle markets.
Market Share Growth: Leveraging innovative products and customer relationships to expand content per vehicle and market share.
Operational Excellence: Achieved 100% green customer scorecards for quality and service across 317 scorecards, and 97% green scorecards for new program launches.
Safety Performance: Maintained a total incident rate of 0.26, with 44 plants achieving a perfect safety record in the first half of 2025.
Cost Optimization: Delivered $25 million in savings through lean initiatives and $4 million in restructuring savings in Q2 2025.
Sealing Systems Strategy: Focused on operational excellence, leveraging digital tools like CS Factory for efficiency, and expanding market share with innovative products.
Fluid Handling Systems Strategy: Targeting 8% annual growth over the next 5 years, with a focus on hybrid vehicles, thermal management solutions, and cost optimization.
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Risk or Challenges
Unfavorable Volume and Mix: The company experienced a slight decrease in sales due to unfavorable volume and mix, including net customer price adjustments. This was partially offset by favorable foreign exchange, but the volume and mix remain a challenge.
Higher Wages and General Inflation: Increased costs from higher wages and general inflation negatively impacted the company's financial performance, adding $6 million in costs for the quarter and $13 million for the first half of the year.
Tariff Impacts and Trade Policy Uncertainty: Uncertainty around U.S. trade policy and the implementation of tariffs could impact the auto industry globally. While the company has reached agreements to recover most direct tariff impacts, the broader trade environment remains a risk.
Lower Production Volumes: Production volumes remain below planned expectations, which could impact revenue and profitability. The company has adjusted its plans but acknowledges this as an ongoing challenge.
Cash Flow and Liquidity Constraints: Net cash used in operating activities was $16 million in the second quarter, with a free cash outflow of $23 million. While liquidity is sufficient for now, cash flow constraints could pose challenges if conditions worsen.
Dependence on Customer Agreements: The company’s ability to recover tariff impacts and manage pricing adjustments relies heavily on agreements with customers, which could be a vulnerability if negotiations do not go as planned in the future.
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Guidance & Outlook
Revenue Growth: The sealing business is expected to achieve revenue growth of about 6% on average over the next 5 years, while the fluid handling business anticipates approximately 8% annual growth over the same period.
EBITDA Margin Expansion: The sealing business aims to significantly expand EBITDA margins, with return on capital increasing to approximately 20% by 2030. The fluid handling business expects EBITDA margins to increase to around 16%, with return on invested capital approaching 30% over the 5-year planning horizon.
Capital Structure and Liquidity: The company expects to achieve positive free cash flow for the full year 2025 and aims to reduce its net leverage ratio below 4x by year-end. Plans to refinance first and third lien notes with more favorable terms and rates are under evaluation.
Operational Excellence: The company plans to sustain operational excellence through digital tools powered by artificial intelligence, which will be deployed globally to improve manufacturing efficiency and product development cycles.
Market Trends and Product Innovation: The company is leveraging growth trends in hybrid vehicles to expand content per vehicle and launching innovative products like thermal management solutions and the eCoFlow family of products.
Guidance for 2025: Full-year guidance for adjusted EBITDA has been raised, driven by improvements in manufacturing, purchasing, and operational execution. The company has successfully negotiated agreements to recover the majority of direct tariff impacts.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:On the sealing side, is there $400 million of incremental revenue, of which $300 million is net new business?
A:Yes, the math is correct.
Q:What accounts for the remaining $100 million in sealing revenue?
A:It is attributed to a modest increase in production, pricing, or mix.
Q:What is the math on the fluid side, $600 million of incremental revenue? Are you sharing how much net new business is in that number?
A:Net new business for both product groups has been broken out and reported externally. The $600 million includes content per vehicle data points and vertical integration opportunities, but excludes potential consolidation opportunities and hybrid vertical integration.
Q:Is it fair to say that if there's $100 million of other in sealing, there's $100 million of other in fluid, making $500 million in net new business in fluid over the next 5 years?
A:Yes, that is correct.
Q:Is 80% of the incremental $1 billion booked?
A:Yes, that is correct.
Q:Can you elaborate on how margin expansion is based on the optimization of the footprint in a tariff environment?
A:The company has a detailed process for new business, including hurdle rates and margin expectations. Pricing and cost improvements are managed closely, and forecasting has improved significantly, providing accuracy even for long-term projections.
Q:Are you forecasting at the midpoint adjusted EBITDA of $235 million for fiscal '25 and something north of $500 million for fiscal '30?
A:Yes, that is correct.
Q:Do you have any lines currently today, whether in fluid or sealing, that are at the types of margins you're looking at as a guidepost for 2030?
A:Yes, there are lines currently achieving the desired margins.
Q:Is the forecast for fluid conservative, and does it include upside potential from hybrid vertical integration?
A:Yes, the forecast is conservative and does not include upside potential from hybrid vertical integration, which could drive significant content per vehicle.
Q:Does the company have an outside shot of getting close to 10% margins by 4Q as an exit rate?
A:Yes, the company is holding to that expectation, despite conservative volume forecasts from S&P.
Q:How much cash restructuring was there in 2Q or the first half?
A:Cash restructuring was less than $10 million in the first half.
Q:Will the working capital use of about $75 million in the first half unwind completely in the second half?
A:Yes, the working capital use is expected to unwind completely in the second half.
Q:If successful in refinancing the first and third liens, what type of rate reduction can be expected?
A:The rate reduction could range from 100 to 300 basis points, depending on market conditions and credit ratings.
Q:Can you provide more detail on the use of cash for working capital this quarter and how it will unwind in the second half?
A:The outflow was primarily due to a build-up of accounts receivable, which is expected to normalize by year-end. Inventory and accounts payable net each other out.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer on the exact rate reduction expected from refinancing the first and third liens, stating that it depends on market conditions and credit ratings.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Cooper Standard
Edwards
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capital structure
credit
customer price
exchange
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focus
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improvement
incident
launch
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manufacturing
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volume mix
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world
CPS Transcript
Cooper-Standard Holdings Inc. (CPS) Q3 2025 Earnings Call Transcript
Unknown10-31
The earnings call presents mixed signals. Financial performance shows slight improvement with increased sales and EBITDA, but higher costs and inflation pressures remain concerning. The Q&A highlights potential growth in 2026 and linear margin expansion, yet uncertainties like production delays and unclear guidance on new business breakdowns persist. Positive cash flow and liquidity are promising, but the lack of clear guidance on certain aspects tempers optimism. Thus, the overall sentiment is neutral, with no strong catalysts for significant stock price movement in either direction.
Cooper-Standard Holdings Inc. (CPS) Q2 2025 Earnings Call Transcript
Positive8-1
The company reported improved financial metrics, including a shift from a net loss to a positive adjusted net income, increased gross profit and EBITDA margins, and strong liquidity. The Q&A session confirmed significant new business and margin expansion potential, with conservative forecasts suggesting further upside. These factors, combined with a successful refinancing outlook, indicate a positive sentiment for the stock price over the next two weeks.
Cooper-Standard Holdings Inc. (CPS) Q1 2025 Earnings Call Transcript
Unknown5-2
The earnings call reveals mixed signals. While there is positive momentum in EBITDA and net income, sales have slightly declined. The absence of a share repurchase or dividend program, coupled with ongoing inflation and tariff challenges, dampens sentiment. Management's unclear responses in the Q&A about EVs and production levels add uncertainty. However, the maintenance of guidance and expected recovery of tariff costs provide stability. Given these factors, and without market cap data, a neutral stock price movement (-2% to 2%) is predicted.
Earnings call transcript: Cooper Standard Q1 2025 beats EPS expectations, stock surges
Positive5-2
The earnings call reveals strong operational performance, cost savings, and innovation, with improved financial metrics like doubled EBITDA and a return to profitability. Despite a slight sales decline, positive cash flow is expected. The Q&A highlights management's confidence in maintaining guidance and achieving a double-digit EBITDA margin. While there are uncertainties in tariffs and hybrid vehicle impacts, the overall sentiment is positive, with a focus on profitability and margin expansion. The lack of shareholder return plans is neutral, but positive financial and operational outlooks suggest a 2% to 8% stock price increase.
CPS Slides
CPS Report
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